Episode 130: Short-Term Rentals, Long-Term Wealth with Tim Hubbard

Announcer:
This is The WealthAbility® Show with Tom Wheelwright. Way more money, way less taxes.

Tom Wheelwright:

Welcome to The WealthAbility Show, where we’re always discovering how to make way more money and pay way less tax. So lots of us have used short-term rentals, lots of us have thought of short-term rentals. But we are always thinking, “Wow, that sounds like a lot of work.” What if it could actually be passive income?

So today we have a very special guest. And you’re going to discover, and I am too, how to turn short-term rentals into passive income. And I have with me a very special friend of mine, Tim Hubbard, who’s been doing this for years and years and years. And I want to welcome you to the show, Tim. And if you could, just give us a little of your background?

Tim Hubbard:

Thanks for having me on, Tom. I am excited to be here. And it’s been an exciting journey with short-term rentals too. So the real quick background, I started investing in traditional rentals about 12 years ago, long-term rentals, single family homes, small apartment buildings. And I’ve been staying in short-term rentals for a long time because I love traveling.

And at one point, I had started looking in other markets outside of California where I’m originally from. And I was in a market in Tennessee, but I went to a whole bunch of different places and checked out properties. And I was staying in a short-term rental while I was looking for long-term rental investments.

And I was running the numbers on the long-term rental, and I was running them on the Airbnb that I was renting, and a light bulb went off and I just switched my focus. And I started doing that. So a long story short, come a long way and have short-term rentals in five cities, three countries. And my team and I have managed 22,000 guests now. So we’ve learned a lot.

Tom Wheelwright:

That’s awesome. Well, we’re dying to learn from you. We’ve all stayed in the short-term rentals. Of course, the aha moment, I’m sure came is that, “Wait a minute, the shorter I can rent something, rent it out, the shorter the lease, the more money I can make,” right? That’s very clear. The shorter I can lease it, the more money I can make.

Actually, the smaller the unit and the shorter time I can rent it out, the more money I can make. Which is why hotels, there’s so many hotels, right? Because they’re one-day rentals and they’re a really small unit. So it’s the same proposition here as Airbnb and Vrbo et cetera. So of course, one of the things that I think about, and I think most people think about, Tim, is, “All right, great. That makes sense. But boy, that sounds like a lot of work.”

The objection that we always get in the long-term rental market is, “Well, I don’t want to be fixing toilets. I don’t want people to call me in the middle of the night,” et cetera. And we say, “Well, you put a management team together.” But you’re talking about 30 days at a time, typically one-year leases. That’s a pretty easy management, really pretty easy to manage that single family rental where you got a new tenant every year at the most, right?

And you’re turning it every few years, basically. But here, you’re turning it frequently, two or three times a week. So the big question is, is how do I not? And this is really where I want to go down the rabbit hole.

Tim Hubbard:

Totally.

Tom Wheelwright:

We know there’s money here, we absolutely know it. It’s actually pushed up the price in a lot of areas, like Sedona, you can’t buy a house anymore and actually look at it, because Airbnb people will just snatch them up because it’s such a good community for Airbnb.

Because people want to come and stay for a few days or a week or something. So what’s the answer to that, Tim? Let’s give us the magic formula here. We’re all dying to hear it.

Tim Hubbard:

Well, management is key. It’s key with long-term rentals. And so you can have long-term rentals that are also a pain in the butt to manage if you don’t have good management. So it really does come down to management. And of course, there are more operational pieces that go into a short-term rental. If the average day is three nights versus a year, then there’s just a lot more going on there.

But the nice thing is that we have so many tools available now that we can help manage all of those incoming guests much, much more easily than we ever have been able to. And the reality is that a lot of our guests that are coming in, we don’t even talk to, we don’t meet them face to face because we have self check-in, we have remote locks, we have ways of protecting our properties remotely.

And a lot of times, we have guests come in, we’ve sent them automated messages. Of course, we have someone on the back-end too that can respond to whatever we need to. But a lot of times, Tom, we have guests that check in, they have a fabulous stay, no matter how long it was. They check out. And we have never actually communicated with them because everything was set up and ready to go. So it really comes down to the systems and the management’s going to be more crucial in terms of backup. If something goes wrong, you got to make sure you have the people there [inaudible 00:05:27].

Tom Wheelwright:

Of course. The garbage disposal doesn’t work, the toilet’s backed up, whatever. Those things happen anywhere. They happen in our own homes. So how do you handle that?

Tim Hubbard:

Well, it’s same way really you would handle long-term rentals. You got to have someone there to help you with it. So having a handyman and having contacts for air conditioning and heating and electrical. All the same contacts that we need for a long-term rental, we’re going to need for a short-term rental too.

The thing with short-term rentals is that we just don’t have a long timeline. But usually, these are emergency type scenarios where the AC goes out. We don’t plan on the AC going out, we don’t plan on the AC going out with a long-term tenant either. So there is an understanding there with a guest if you do have an issue, of course, you have to have someone there to check on as soon as possible.

And worst comes the worst, you can’t get it fixed, you got to have a place to send your guest or maybe it’s a hotel. But those are kind of situations that we can avoid most of the time, especially if we have a good property to start with, it’s well taken care of.

Tom Wheelwright:

So let’s do this. If you don’t mind, Tim, I actually have a property in mind. So I love the idea of short-term rentals from the standpoint that there’s a lot of places where I’d like to own a home, but I’d like it to be the home that I want to own. But I’d like the short-term rental guest to pay the mortgage basically, right?

Tim Hubbard:

Yeah.

Tom Wheelwright:

So that it’s not out of pocket. You like to travel, I like to travel. When I like to travel, I’d prefer not to stay in somebody else’s place. I’d rather stay in the place that I selected and that it’s the way I want it. So this place is in a resort town. And it’s got a beautiful view, it’s got a pool, it’s got four bedrooms. So what do I need to look at? So for me, it looks great, but what do I need to look at when I’m looking at a property to determine is this a good property for short-term rental?

Tim Hubbard:

Fortunately, we have tons of resources now for finding that data. So it all really comes down to data. Comes down to supply and demand, just like long-term rental investing does as well. So probably, one of the most popular sources for that information is called airdna.co. And really large companies like CBRE are using their data. And basically, what they’ve done is they pull data from Airbnb and Vrbo and HomeAway so that we can get an accurate picture of what’s already in that market.

And you can really narrow it down in terms of how many one bedrooms do we have? How many two bedrooms do we have? How many three bedrooms do we have? Do the three bedrooms have a Jacuzzi? Do they not have it? And then we can check the rates, the average rates on a historical basis and see how well those properties are performing.

So really good information. Honestly, sometimes I feel like better information than we have in the single family long-term investment space. So you can really get granular with it. And that is the way to check it, to check to see, first of all, if the market is good for property because we got to make sure. Another step with short-term rentals that we don’t really have with long-term rentals is that they’re not allowed in some places.

So that can really crush your investment if you can’t actually do it there. But that’s easy to find. We can Google, but we really got to narrow it down to the neighborhood because it might be that a whole city offers or allows short-term rentals. But then maybe there’s one neighborhood within it that doesn’t. So we got to be careful with that one. But it’s easy to find out.

Tom Wheelwright:

For sure. HOAs are notorious for wanting to control that aspect of people’s lives. Not a big fan of HOAs. And I would try to stay out of an HOA probably with the short-term rental because the HOA is going to complain. They’re going to go, “Well, what about this? What about this? What about this?” If you don’t have an HOA, then all of a sudden, boy, life is easier.

Tim Hubbard:

Yeah, and we never know with HOAs too. It could be one day, everything’s fine, everyone’s renting. And then there’s a board meeting, and they make a change. And then all of a sudden you can’t do it anymore. So if we don’t have an HOA, we don’t have that additional potential risk.

Tom Wheelwright:

So you’ve gathered that data, you determined that based on this analysis, typically it’s going to be rented this much time. And you can, I presume, get what the rental rate should be and how to rent it out. So we did a podcast recently on AI, and it was talking about predictability.

And you’re talking about all this data, which basically can be used in it. That’s what AI is for, is predicting based on data that you’ve got. But I presume you ought to be able to predict what’s the best rental price, what’s the best nightly rate and whether you give discounts for longer term stays.

Tim Hubbard:

Yeah. No, that’s a whole nother layer of data. And the pricing’s really, really important. Because you can have a perfect property, but if it’s not priced right, no one’s going to rent it. And so there’s another tool actually that I use for pricing. I can get the initial pricing from AirDNA. It gives averages, it gets historical numbers.

But what I use for pricing is called pricelabs.co. And it’s set up specifically to manage your pricing for a short-term rental. And they also have a lot of good data, because they need the data from other properties in the area in the market to be able to price your property effectively. So they’re kind of doing the same thing as AirDNA, but they give you a whole host of features on how to control and best price your property.

Everything from adjusting far-out pricing versus pricing within the next week, adjusting discounts based on occupancy or based on length of stay, adjusting your minimum night stays. There’s really a whole bunch that goes into pricing. But it’s really important, and it’s nice that we have these tools. So if someone’s just getting started, they can let these dynamic pricing software tools just do it for you automatically.

You can set a base price, and you can set a max price and a minimum price. And it will automatically adjust your price based on neighborhood demand, based on seasonality, based on whether there’s a big event happening in your area. So of course, this depends on which city you’re in. Their data’s better in some places than other, but it’s all information that we can find out before we start using it.

Tom Wheelwright:

Hey, if you like financial education the way I do, you’re going to love Buck Joffrey’s podcast. Buck’s a friend of mine, he’s a client of mine, he’s a former board certified surgeon. And he’s turned into a real estate professional. So he has this podcast that is geared towards high-paid professionals. That’s who he’s geared towards.

So if you’re a high-paid professional, you’re going, “Look, I’d like to do something different with my money than what I’m doing. I’d like to get financially educated, I’d like to take control of my money and my life and my taxes.” I would love to recommend Buck Joffrey’s podcast, which is called Wealth Formula Podcast with Buck Joffrey. I hope you join Buck on this adventure of a lifetime.

That’s great because that’s critical. And typically, real estate, you say you make your money when you buy it. But I think you mentioned it earlier, the bigger step is you… And when it comes to rental property, particularly residential rental, which is what effectively, this is, it’s really about the management.

Management is where you make it make or lose it. You’ve done all your work on the front-end, you’ve determined this is a good property and it’s the right town, it’s the right neighborhood. I should be able to make money on this. But then there’s the management. The management is the crux of it. So how do you go about building that team? And who needs to be on that team for management?

Tim Hubbard:

Yeah, great question. It’s really important. And this is different from traditional long-term rentals too, where the management seriously can just make or break your property. If we look at a short-term rental, for example, and let’s say we have two right next to each other, your house, for example. Let’s say we have an identical one right next to it.

But they’re not doing as good a job as managing as you are. You could literally make twice as much money as they are based on things with reviews, how you’re pricing it. That doesn’t really happen in the long-term rental world. If we have two single family homes right next to each other and they’re both three twos, there’s no way that we can charge three times more for one than we can the other.

So just to reiterate how important the management really is. There is quite a bit that goes into it. There’s two pieces really. There’s our online piece, everything we can set up online. So how our property looks, the type of text that we put in there, the photos we have, the communications, how all that’s set up. And then we’ve got the on-the-ground part, which is our housekeeping, our maintenance and management.

Now, a cool thing with short-term rentals too is you can really centralize management. So my team, for example, we’re managing my properties all over the place, but they’re virtual. So they’re centralized. A lot of my team’s out of the Philippines and Mexico, and they can manage properties anywhere. So I can get a property in Arizona tomorrow, and we can plug in the same systems and manage the virtual piece the same way.

But then the on-the-ground piece, housekeeping is really, really important. And it’s probably the number one area where someone’s going to get a bad review. And a bad review can really, really hurt you when it comes to short-term rentals. So finding good housekeepers is really important. There’s also some tools that we have available now that help us with that. So I use a tool called Breezeway, for example, which allows us to create custom checklists per property and for our housekeepers.

And it’s a checklist that they can use to make sure they don’t miss any steps. But also, that lets us know that they’re not missing any steps. So we could ask them, for example, to take a picture of the bed with the towels folded on it. And they can’t close out that job until they’ve actually taken a picture and uploaded it right in the app. So some really good tools to help with the management after we found some of our team already.

Tom Wheelwright:

That’s amazing, frankly. So let’s talk about one more thing when it comes to management. So for example, this last couple of months ago, I used an Airbnb. I’ll tell you what, they did a couple of really nice things. Not only had they actually developed the property to be more Airbnb-friendly and actually done the furniture right and all that kind of stuff. I’m sure that you’ve got lots of resources on that.

But in the backyard, while it wasn’t a nice backyard, they didn’t spend money on the backyard. What they did do is they put in bench swings, a fireplace, and they left hotdog holders and they left marshmallow holders and they left firewood.

And that was a little nice thing. And actually, that was a big… We used one evening and we had roasted hot dogs and had chili dogs, and it actually became part of the experience to do that. How important is doing little things like that when it comes to short-term rentals?

Tim Hubbard:

It depends. I would say it comes back to supply and demand. If we have a lot of people going to stay in a place, but we don’t have enough properties, you don’t really have to pull all these extra moves because people are going to rent your property anyways. But if you’re in a competitive market, that’s where these little things become even more important, and they really can drive your revenue and your returns a lot more.

Also, we got to take a step back though, Tom. There’s so many different types of short-term rentals. Airbnb, alone, has 56 different categories to separate them out. So to compare a oceanside villa to an inner-city apartment, for example, it’s really hard to just compare them straight across the board.

But I would say in a property where you guys just experienced where you had the marshmallows and all that, is maybe more of a vacation type property that you might want to go back to every year with your family. And so these types of properties that are maybe an annual getaway for a family, I think that’s where some of these little things become a little more important.

Because you could start to fill up your calendar further out in advance. If you leave that property and say, “Oh, we’re coming back to this property next year.” And so you book it out.

Tom Wheelwright:

Just like anything else, repeat customers can be really important.

Tim Hubbard:

Yeah, totally. Totally.

Tom Wheelwright:

I like that. So one of the things you talk about is you talk about making it passive income, and none of this so far sounds like passive income to me. It all sounds very active, a lot of work, a lot of involvement. How do you turn that from that really active, you’re managing it on a regular basis to a passive situation?

Tim Hubbard:

Well, we have to let go of a lot of control. So we can’t be the ones sending the guest messages, we can’t be the ones doing the housekeeping in our properties or checking on maintenance or anything like that. And so that part of it is we just have to let go. Now, we can do that safely using a lot of these tools that are available now.

But that really is the biggest step. And I know I’ve been doing short-term rentals for a long time now, and I live thousands of miles away from most of my properties. I’m down here in South America. And so that’s always the first question people ask are like, “Man, short-term rentals just seem so complicated and so management-intensive.” And they can be if you don’t have the systems set up right. So I would say it just comes down to delegating and systems and getting some good people on your team.

Tom Wheelwright:

Like any business, right?

Tim Hubbard:

Yeah.

Tom Wheelwright:

You can manage it by walking around. That old idea that you can manage it by looking at it or you can manage it from South America and let somebody else do it. And you can have people in the Philippines and other places which cut your cost way down.

Of course, cost is a major, major aspect of this, is keeping your costs down. But for a minute, of course, we have to talk about the tax aspects a little bit. Because of course, short-term rentals, we do get deductions in short-term rentals. We get depreciation in short-term rentals.

And I did want to bring up one difference between short-term and long-term rentals. Long-term rental, you have to be a real estate professional in order to be able to use those losses. But short-term rentals aren’t part of long-term rentals. So they’re not considered long-term rentals. And so therefore, we actually can spend a little less time in our rentals and still get the deductions.

So I think that’s an advantage of the short-term rental over the long-term rental that we always ought to keep in mind. And never forget that it’s your after-tax rate of return that matters, not your before-tax rate of return. Nobody cares about before-tax rate of return. It’s all after-tax rate of return.

Tim Hubbard:

Yeah, good point. And there are some additional taxes too: transient occupancy taxes, for example, which are something that most people, the short-term rental are going to have to pay in addition. That’s the same tax that a hotel would pay.

But that depends also based on the length of your stay and on the city’s regulation, I think, if I’m understanding right. But a lot of times, when you have a short-term stay that’s 30 days or longer, you’re not subject to those transient occupancy taxes, which that’s another really exciting space of short-term rentals, is that people are staying in them longer. And actually, people are living in short-term rentals now.

Tom Wheelwright:

Really?

Tim Hubbard:

Totally, totally. Yeah, Airbnbs.

Tom Wheelwright:

Is it because they like all the services?

Tim Hubbard:

Well, I think that’s part of it. But I also think people are just more mobile than they ever have been.

Tom Wheelwright:

Interesting.

Tim Hubbard:

Now that we can work virtually, we can go stay at places. If we’re not sure if we want to actually live there, maybe we rent a place for a few months to try it out. If we don’t end up liking it, we can rent another one. And we are in a renter’s nation, we’ve heard that term being thrown around.

And I think that’s increasing, especially with interest rates still going up. So when less people are purchasing homes, they’re either going to be renting a place long-term or maybe they’re waiting around to buy their own home. And so they’re renting a place for a shorter period of time. So that is Airbnb’s fastest growing segment, our long-term stays.

Tom Wheelwright:

That’s interesting. So I’ve always thought one of the advantages of Airbnb is the rating system. This is why we like things like Yelp because we get to see what the ratings are. But the landlords also get to rate the tenants. So that’s a little bit of pressure on the tenants because you don’t want to be banned from Airbnb. That would be bad.

So I think that’s a little bit of benefit. So if you can think of the top three things that people ought to consider when they’re thinking about, “Should I go into short-term rental? Is this a market I should go to?” What would you want them to be looking at?

Tim Hubbard:

Yeah, that’s a good question. I think the first thing is that we have to ask ourselves what actually is it that we want? Do we want a vacation rental where we can spend two months a year, and then rent it out the other 10 months? Because that’s going to change our decision. It’s not 100% investment at that point. So I think that’s the first thing that we got to ask ourselves.

If we want to start with a property that’s also going to have some personal use, then maybe some of the things I would recommend don’t necessarily apply if you have the personal use there. If it’s just a straight short-term rental, I think when I look for a market, when I look for a city, I look for a lot of the same things I would if I was investing in long-term rentals.

I want to be in a place that’s growing, that has more people moving to it, that’s landlord-friendly. I found a lot of times that in the places that are landlord-friendly, they also have friendlier short-term rental regulations, not 100% across the board. I have long-term rentals too, so I look for a lot of the same things. And if we’re in a place that’s growing and we’ve got more demand, the short-term rental demand’s going to grow along with it.

Tom Wheelwright:

Got it. So what areas do you see? You mentioned the longer-term, short-term rentals. A little bit of an oxymoron there. But what other trends are you seeing in the short-term rental market?

Tim Hubbard:

The one where people are staying longer is a really big one. I think after the pandemic, we had everyone leaving urban areas and staying in vacation rental homes. And there was a huge increase in supply and vacation rental homes, while there was a decrease in short-term rentals in the bigger cities. And now we’re kind of seeing the opposite.

There was almost an oversupply. And again, it’s really hard to just lump everything together. Every market’s very, very different or can be very different. But I think we’re seeing people come back to work, travel has returned a little bit and I think it’s going to continue to. I joined a webinar not too long ago with some of the really big names, like Expedia and Marriott.

And they were most bullish on places they were calling bleisure. So a cross between leisure and business travel. Because back, several years ago, when someone traveled for work, a lot of times, they show up on a Monday and they stay there till Friday and then they head home on the weekend.

But now, since we can work virtually, a lot of us, or at least it’s more remote, if we can be in a place that has both components. So maybe it’s attracting business people, but also has a leisure component, then maybe that same person comes in the Friday before and they leave the Sunday after. And that one week reservation becomes almost a two-week reservation.

So I’ve tended to focus on properties like that. I’ve also found that those types of guests are a little easier to manage too. A business person coming in for work, a lot of times, they travel by themselves. And they show up and they’re not having a big party and stuff like that. So that’s what I’ve kind of focused on.

And that’s made it easier for me to scale while living really far away from the properties too because it is just a somewhat easier type of management. But definitely not the only way to do it. You can be successful with all different types of short-term rentals.

Tom Wheelwright:

So let me ask you one more, which is, do you see business people going in and staying in the short-term rentals instead of hotels?

Tim Hubbard:

Yeah, totally. We get a lot of guests. It depends on the length of stay too. If someone comes in for one night, then maybe they’re going to be a little more inclined to book a hotel. When I go to a conference, for example, I like staying in the hotel where the conference is so I don’t have to go offsite and do all that.

So it depends on the length of stay. But I would say if someone is going to be there for a few days, a short-term rental becomes a really, really good option for them. And also, to go back to the experience you had, it provides an experience where a lot of times, the hotels, they might have 150 rooms, they’re all 250 square feet, they all look exactly the same. Versus some short-term rental that’s got some character, it’s got maybe the owner’s personal recommendations. So it can provide a lot more experience than some hotels might.

Tom Wheelwright:

On top of that, with hotels no longer providing… They’re not necessarily cleaning your rooms anymore.

Tim Hubbard:

Yeah, that’s true.

Tom Wheelwright:

They’re not providing a lot of those services, but they’re charging the same amount. That it seems to me like that is probably a plus for the short-term rental market that the hotels have decided we’re not going to do those extra services. Not extra, those literal day-to-day services. So now they don’t really have the same advantage that they would’ve had if they were doing that type of extra service.

Tim Hubbard:

No, it’s a great point. I remember, I checked into one of the hotels on the Vegas Strip, this was maybe right after COVID. And they were doing self check-in. A big hotel where that was never available before. I saw some stat recently too where they had pulled some of the largest hotel names in the industry.

And by 2026, they were expecting the majority of them to at least have this self check-in option. So they’re sort of borrowing some things from short-term rentals and vice versa. But it makes sense. They have less employees or they need less help if guests can do a lot of these things on their own. So no, there’s a merging sort of happening.

Tom Wheelwright:

That’s awesome. So short-term rental, certainly an option. And if you’re looking at real estate, certainly an option both from a tax standpoint, from an investment standpoint. Certainly, the gross revenue should be much higher because you’re renting more frequently.

The key is to keep the net revenue higher. And that comes through, as you say, management and systems. So if people want more information about your systems and how you help people with Airbnb, where would they go, Tim?

Tim Hubbard:

I have a podcast as well, actually. It’s called Short Term Rental Riches. And they’re bite-size actional episodes for anyone that wants, or already has, a short-term rental. And then also restmethods.com is my website. And I’ve got a bunch of free resources, and the software programs I use and everything there as well.

Tom Wheelwright:

Awesome. Well, thank you, Tim Hubbard. It is restmethods.com. And be sure to check out his podcast as well. And just remember that we really want to get really good at something. And Tim’s clearly, his niche has been the short-term rentals. He’s gotten really good at it, so much so that he can do it from anywhere in the world. He’s got people all over the world doing it. For some people they go, “Wow, I can’t even imagine that you could do that.”

But Tim’s done it. And so just encourage you, whatever that niche is for you, pick that niche, get really good at it and just make a decision, the same decision. And just do it over and over and over again. And that’s what Tim’s done so successfully. So thank you, Tim, for being with us. Thanks, everybody.

Remember that whether it’s short-term rental, long-term rental, whether it’s business or whatever you’re investing in, whatever your business is, if you do it using systems, building the right team, having the right people in place, you can always make way more money and pay way less tax. We’ll see you next time.

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